Hospitality Today Aug-Sep 2016 - Page 4

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| Hospitality Today | Aug/Sept 2016
The high cost of the ‘Lowcost’
OTA business model
The failure last month of the £500 million online travel agent (OTA) Lowcost
Travel Group left many thousands of travellers losing money, despite believing
they were protected.
The crash has prompted some commentators (such as HT publisher David
Weston in Travel Weekly) to question whether consumers are aware of the
dangers inherent in the business models of online platforms - and whether
regulators are doing enough to ensure financial protection and public safety.
Lowcost exemplified many new business
practices that have been growing
inexorably in travel & tourism, and have
been eclipsing traditional business models.
The new, exponentially growing trends are:
online business models;
globalized businesses (which can play
regulators off against each other, and
move HQ to the lowest-cost and lightesttouch jurisdictions);
regulation-avoidance embedded in
business models;
replacing risk and commitment with a
transactional approach enabled by new
technology;
eliminating the costs of inspection and
due diligence; and
eliminating the costs of a destination
presence and infrastructure.
These “new virtues” owe much to Silicon
Valley “disruptive” thinking – and their
success is seen in the exponential rise of the
biggest OTAs and of Airbnb – even though
they could not in the end protect Lowcost
Travel Group form failure (an illustration
that even a £500m turnover is far too small
to compete with Booking.com and expedia
in buying search results on Google).
The “old virtues” – exemplified by the
traditional hospitality business like hotels,
and by traditional bonded tour operators by comparison look like financial shackles:
a risky commitment to owned (or precontracted) accommodation (and hence
to host communities and suppliers);
acceptance of regulation and consumer
protection as a price of doing business
responsibly (and inevitably reflected in
higher prices which can be undercut
by those whose business model avoids
those costs);
a strong incentive to quality and safety
because accommodation owners and
tour operators carry 100% liability for
package elements – again, at a (high)
cost that those avoiding liability can
undercut.
When the two models are compared, it is
no wonder that the low-risk, low-cost new
players are trouncing the high-risk, highcost “old guard”. No wonder Airbnb are
eclipsing hotels, and OTAs are eclipsing
tour operators.
Yet consumers booking accommodation
with a platform like Airbnb seem to
perceive it (encouraged by Airbnb itself)
as a global brand like Hilton - and seem